Union Pacific (UNP, Financial) is making the most of the growing railroad demand in the U.S. The company is gaining good traction due to increasing volumes that are being transported. For example, during the recent quarter, its volume increased by 8% against the same period last year, primarily driven by robust demand in franchise due to rise in volume for its 5 out of 6 business groups. There was solid gain in Industrial Products, Intermodal and Agricultural Products coupled with expansion in Automotive and Coal.
Strong performance in different segments
In agricultural business, volume increased 16% along with 2% development in average revenue per car and 19% rise in revenue growth.
The expansion of the U.S. supply and weak commodity prices during the quarter propelled solid demand for export feed grain. Demand for the domestic feed grain also increased for the franchise.
Ethanol shipments increased 15% coupled with 8% rise in volume for the grain products. DDG shipments expanded 33% owing to rise in shipments to Mexico. Food and refrigerated shipments increased 3% during the quarter.
The automotive production in North America continues to be solid, increasing 4% from the fourth quarter last year. Moreover, the sales rebound continue to accelerate with the progressing second quarter.
For the parts segment, volume expanded 8% due to robust demand for production.
Industrial Chemicals volume increased 7% as a result of solid demand in several markets like nylon production, filling the inventory for de-icing materials and expanding shale-related drilling.
Fertilizer shipments increased 2% in the quarter, driven by the rebound of the planting season in the U.S.
The coal tonnage for Colorado/Utah increased 11%, primarily driven by the rise in demand for the western part of its network, and there’s solid gain in other coal-producing regions where tonnage expanded 12% during the quarter.
There was a 12% increase in volume registered for the company’s industrial products business. IT grew 21% in volume for the quarter due to non-metallic minerals. Frac sand shipments for the quarter this year increased more than 25% since last year. The key developments in the housing market are driving the lumber demand with 17% increase in the lumber shipments during the quarter.
The shipments of construction products increased 15% with the rising demand for cement and aggregates, mainly in California and Texas.
There was a 12% increase in Intermodal volume for the second quarter owing to ongoing highway conversions and new premium services.
The international Intermodal volumes for Union Pacific increased 13%.
Strong demand environment and expansion
The demand in Domestic Intermodal is believed to grow robustly with rising highway conversions and expanding new product offerings. International Intermodal must gain from a developing economy.
The company has increased its active locomotive fleet above 800 units by expanding its resources. It has also increased its workforce by nearly 800, executing on its expansion plans.
The new capacity expected for this year involves 300 million or equivalent on the southern region and 56 miles of double track on the Sunset Route. The increase in the critical capacity and convenient run of earlier controlled part of its network is mainly driven by the investments in the South. The management is also increasing investments to enable expanding volumes in the company’s north and south corridors. Union Pacific is also buying 229 locomotives, above 400 freight cars coupled with 5,000 domestic containers.
The company also bought back 8.3 million shares of its own stock for $806 million and thus helping it to increase the earnings for the quarter.
According to the Citi analyst Christian Wetherbee, the excellent performance of the company is expected to continue delivering solid stock performance for investors.
Conclusion
Union Pacific making the most of the growing railroad demand in the U.S. as its results across segments are improving. This is a positive indicator for the long run, and the reason why investors can think of investing in it.
